Bank fixed deposits (FDs) are a favourite investing tool for senior citizens because of guaranteed returns, although corporate FDs offer higher interest rates. While bank FDs offer around 7.75 per cent to senior citizens in most banks, corporate FDs provide over 8.0 per cent.
For example, Manipal Housing Finance Syndicate Ltd offers 8.50 per cent for one-year and three-year FDs and 8.0 per cent for five-year FDs, which includes the additional 0.25 per cent for senior citizens, as of November 8, 2023, according to Paisabazaar.com.
Shriram Finance provides 8.03 per cent for a one-year FD and 8.68 per cent and 8.77 per cent for three-year and five-year FDs, respectively, which includes an additional 0.50 per cent to senior citizens.
Likewise, Muthoot Capital Services Ltd offers 0.50 per cent extra to senior citizens, which comes to 8.88 per cent for a five-year tenure and 7.71 per cent and 8.57 per cent for one-year and three-year FDs, respectively.
When it comes to credit rating, rating agency Acuite gives Manipal an A, while Shriram Finance has an AA+ rating from ICRA and India Rating and Research. Muthoot has an A+ from CRISIL.
There are more companies offering FDs. For instance, Mahindra Finance provides 7.85 per cent, including an additional 0.25 per cent, to seniors for a one-year FD and 8.30 per cent for three and five-year FDs. CRISIL rated its FDs as AAA.
While these interest rates look attractive, the credit rating of FDs is also an important parameter to consider. So, should senior citizens opt for corporate FDs?
Are Corporate FDs Safe For Senior Citizens?
Preeti Zende, a Sebi-registered investment advisor, says, “Private companies, mostly NBFCs, issue Corporate FD. As they are from private enterprises, neither interest nor principal is safe. That is why it is important to check their credit rating. It should be an AAA rating. The company should be old in the business and should carry high goodwill in the market”.
Generally, seniors don’t want to take risks with their money, but if they have a risk appetite or want to invest in corporate FDs, they should check their credit ratings. The ratings could be AAA, AA+, AA, BBB, etc. The highest credit rating is AAA. However, it does not ensure that these FDs are secure. Seniors investing in a corporate FD should always be wary of the risks.
In addition, corporate FDs levy a penalty for premature withdrawals. Although banks also charge a penalty, it is much less, at around 1.0-1.25 per cent. For corporate FDs, the fine could be 2.0 per cent or more. Usually, they don’t allow withdrawals before six months.
Another thing that seniors should consider is the tax deduction at source (TDS). In the case of corporate FDs, the TDS is deducted if the aggregate interest is more than Rs 5,000. Compared to this, bank FDs deduct TDS when the aggregate interest is more than Rs 50,000 for seniors.
So, while corporate FDs pay higher rates, these are riskier than bank FDs. However, they can invest a small amount, provided they check the company’s financial health and credit rating.
In that case, Zende suggests they should check the company’s performance, how long it has been in the business, customer feedback and most importantly, it should raise the alarm if they offer very high-interest rates than others.
She adds, “They are reliable, but they carry risks. You can choose the best possible option, but make sure you invest for the short term and with a monthly payout option to get money periodically”. However, seniors should be ready to take risks.